By Richard Todd and Rob Schumann, Propel Insurance
Post-pandemic, the property and casualty insurance landscape for senior living facilities is a combination of promising developments and formidable obstacles.
On one hand, both the assisted living and skilled nursing sectors are witnessing enhancements in professional liability and workers’ compensation coverage. The advent of cutting-edge technologies holds the potential to revolutionize how senior living facilities monitor and care for their patients and residents.
On the other hand, the senior living industry grapples with several adverse factors that cast a shadow over its recovery, including a dramatic increase in extreme weather events, extended low occupancy rates and an ongoing labor crisis.
Whether your business capitalizes on the promising developments or becomes mired in the formidable challenges depends at least in part on how you address your insurance and risk management program.
The bright side for senior living facilities
The outlook for insuring senior living facilities is promising, as premium rate increases are expected to be more manageable and availability of coverage appears to be easing in this sector. As highlighted in Alera Group’s 2024 Property and Casualty Market Outlook, new carriers have entered this space in most states, and there is increased competition for accounts with good claim history.
It’s also worth noting that the introduction of new technologies is poised to reduce claims and provide more security for senior living patients. Innovations ranging from wearables that monitor patient heart rates to GPS devices tracking residents’ locations are actively addressing prevalent challenges in reducing insurance risks while simultaneously delivering high-quality care.
Growing concerns in the senior living industry
Cyber-security
While technology has demonstrated its transformative potential, it also presents a dual challenge for assisted living and skilled nursing facilities. These facilities, which hold a substantial amount of medical information, become prime targets for cybercrime, particularly when equipped with outdated information systems susceptible to breaches. Given the critical nature of the information they gather and store, facilities with robust data security measures will secure the most favorable pricing and terms.
Labor shortage
Senior living facilities also face an escalating concern with the rising demand for labor. During the COVID-19 pandemic, assisted living facilities and skilled nursing facilities experienced a substantial loss of 210,000 jobs, as revealed in a report from the American Health Care Association and National Center for Assisted Living. Even post-pandemic, a snap poll conducted from Feb. 21 to March 13, 2023 paints a troubling picture, with a staggering 70 percent of assisted living providers continuing to grapple with substantial or severe workforce shortages. The industry workforce witnessed a decline from over 1.5 million to 1.3 million employees, and the staffing levels in nursing homes are not expected to return to pre-pandemic numbers until 2027, given the current pace.
From an insurance standpoint, the management of labor shortages becomes a focal point. Staffing levels and quality play pivotal roles in influencing claims. Insurance carriers are likely to view favorably those organizations that have fostered work cultures where employees are adequately supported, motivated to work and possess the necessary training and resources to perform their duties effectively.
Increased lawsuit costs
Senior living facilities are extremely vulnerable to liability lawsuits. Litigation costs for these facilities are substantial, particularly in states with high litigation rates. Litigation funding (financing of lawsuits by a third party) and social inflation (the phenomenon of multimillion-dollar judgments in liability cases) also increase loss severity. And as if that weren’t bad enough, the Supreme Court’s recent decision in Health and Hospital Corporation of Marion County et al. v. Talevski, which allows private litigants to bring civil claims under the Federal Nursing Home Reform Act (FNHRA), further raises the stakes for nursing homes.
While a surge in COVID-19 claims has yet to materialize, claimants have filed 1,000 suits nationwide, mostly related to senior care facilities, as noted in Alera Group’s P&C Market Outlook. More are likely to come, as efforts in some states aim to extend statutes of limitations for filing COVID-19 lawsuits.
Natural disasters
In recent years, numerous senior living facilities have faced the devastating impact of severe storms, even predating the destruction caused by Hurricane Ian in September 2022. The winter storm that crippled Texas in 2021 serves as a stark example, with nearly half of the state’s nursing homes having reported emergencies from that event, as highlighted in a report by the U.S. Senate Committee on Finance and the U.S. Senate Committee on Aging. Over 100 Texas nursing homes lost power, and more than 300 were left without access to potable water.
At the same time, the surge in wildfires across the western United States has significantly contributed to the reinforcement of the property insurance market. Consequently, facilities situated outside catastrophe-prone areas are experiencing rate increases ranging from 5 percent to 15 percent. In contrast, higher-risk accounts are experiencing more substantial rate hikes, starting at 25 percent and reaching up to 150 percent, according to insights from Alera Group’s March 2023 Commercial Property Update.
Moving into 2024
Facilities can enhance their standing by implementing strategic measures. Those lacking robust risk management programs are likely to face elevated rates, limited options and a higher share of assumed risk. For instance, in the realm of cyber liability insurance, organizations prioritizing robust data security stand a better chance of securing favorable pricing and terms.
In the realm of property insurance, facility leaders should initiate the renewal process at least 90 days ahead and maintain a keen awareness of their costs, including the replacement values of their buildings. Having updated values is imperative for navigating the complexities of the 2024 property renewals in the current challenging market.
Richard Todd is regional director and partner and Rob Schumann is sales director and equity holder at Propel Insurance, an Alera Group company.